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The Growing Epidemic of Financial Elder Abuse (and What CPAs Can Do About It)

By Mitchell Freedman

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Tax Section

Editor: Albert B. Ellentuck, Esq.

The
incidence of financial abuse perpetrated against the elderly in the
United States is growing to epidemic proportions. Because the
elderly are the fastest-growing segment of our population, more and
more victims and their families are beginning to report its
occurrence. Most alarming, according to the National Center on Elder
Abuse (NCEA), it is being committed on a substantially increased
scale.

According to “Current Population Reports: 1998 and 2000”
(May 2003), pp. 70–88, and related tables published by the U.S.
Bureau of the Census, the mean net worth of married individuals
with a householder over the age of 65 is approximately $109,000
(as compared with $55,000 for the total population). Because the
elderly control larger amounts of wealth, they are more likely to
be targeted for financial abuse. Because many of them are frail or
in poor health and may have cognitive disorders, they are ripe for
victimization. Potential victims also may be enticed if they feel
financial pressure because their spouses need costly care. In
addition, because their wealth is often tied up in real estate,
artwork, and other collectibles, they may be cash poor and
concerned that they will outlive their assets. Unless there are
societal changes or greater protections, the reported incidents
and extent of financial elder abuse will increase dramatically as
the oldest of the baby boom generation begin to enter their senior
years. CPAs and CPA financial planners, as watchdogs and trusted
advisers for families, are in a unique position to protect elderly
clients from financial abuse.

What Is Financial Elder
Abuse?

The NCEA defines financial elder abuse as financial
or material exploitation. It can involve financial mistreatment,
exploitation, or fiduciary, economic, or material abuse. The
center explains that financial elder abuse consists of the illegal
or improper use of an elder’s funds, property, or assets, without
the elder’s consent (see www.elderabusecenter.org). It is often
difficult to identify elder abuse because when elders make
decisions, such as giving large gifts or contributions, those
decisions may seem reasoned and rational to them. However, family
members, with their own biases and agendas, may view such
decisions as squandering their inheritances.

What is
financial elder abuse? Here are just a few examples:

A child is given a power of attorney and uses it to divert
cash from her parent’s bank account.

A lonely
elderly man speaks to a telemarketer because this is one of his
few contacts with the outside world. The telemarketer persuades
the man to purchase an inappropriate and risky investment,
promising unrealistic investment returns.

A
financial salesperson inappropriately convinces an elderly woman
to purchase a variable annuity with high commissions to the
seller and high surrender charges. The woman’s funds are now
tied up and unavailable.

How Prevalent Is
Financial Elder Abuse?

At the request of the U.S.
Congress, the NCEA conducted a study that resulted in the 1998
report, “The National Elder Abuse Incidence Study” (www.aoa.gov/eldfam/Elder_Rights/Elder_Abuse/AbuseReport_Full.pdf).
This report found some very disturbing trends. Reports of elder
abuse increased about 150% from 1986 to 1996, to 293,000 cases.
Furthermore, it is estimated that only one of every six cases of
abuse is ever reported by the victims or their families. Even when
reported, often little or nothing happens to the perpetrator, and
the chances of asset recovery are usually slim.

Seniors
are generally afraid to report abuse or too embarrassed to admit
they have been victimized. Aging individuals have a rational fear
of losing their independence; if they admit to being taken
advantage of, their children may try to take control of their
finances and they will lose some of their autonomy.

Who
Commits Financial Elder Abuse?

The elderly and their adult
children often have concerns about what might happen in a
long-term care facility such as a nursing home. CPAs should advise
their clients that it is wise to take precautions when they or
their parents reside in such facilities. However, the U.S. Bureau
of the Census report “2004 Population Survey” indicated that 82%
of elderly women and 91% of elderly men reside at home. Many of
these individuals are dependent on family, friends, or caregivers.
Therefore, it should come as no surprise that the majority of
occurrences of abuse, both financial and other, happen in the
home.

Who is the financial abuser? Men and women are equally
likely to be financial abusers of older adults. Unfortunately, the
most likely abuser is a family member. In many cases, this family
member has a history of substance abuse. According to “A Response
to the Abuse of Vulnerable Adults: The 2000 Survey of State Adult
Protective Services” (www.elderabusecenter.org/pdf/research/apsreport030703.pdf),
historic data suggest that adult children most often perpetrate
such abuse, but in recent years the abuser is more likely to be a
spouse—especially a second spouse.

How Can CPAs Help
Protect the Elderly?

According to a University of Arkansas
report, “Elder Financial Abuse: Awareness and Prevention” (www.arfamilies.org/money/consumerprotection/elder_financial_abuse.htm),
public awareness and education are essential. CPAs should discuss
the causes, effects, and symptoms of financial elder abuse with
their clients so they can shield themselves from perpetrators.
Financial advisers can explain some possible warning signs (see Exhibit 1). CPAs can speak in their
local communities to provide both awareness and financial literacy
to the elderly. The California Society of CPA’s (CalCPA) “Dollars
& Sense” program (www.calcpa.org/content/communityoutreach/dollars.aspx)
is part of that organization’s financial literacy initiative and
is now also available from the AICPA. Often state legislators will
host such presentations. The programs can also be offered at
nursing homes, assisted-living facilities, and community
organizations for the elderly. CPAs can have candid discussions
with their older clients to explain that there is no shame in
becoming a victim. If abuse should occur, the victims should be
encouraged to report those who have committed it.

As
trusted advisers, CPAs should encourage their clients to explain
their dispositive and gift-planning desires, particularly if there
is a second marriage. The competing interests of a second spouse
and his or her children and those of the other spouse and adult
children can lead to financial elder abuse. CPAs can also
encourage their clients to take the steps indicated in Exhibit 2 to help ensure that their clients
avoid victimization.

The most useful way to help is to
offer PrimePlus/ElderCare Sevices (http://pfp.aicpa.org/Resources/ElderCare+PrimePlus+Services).
CPAs can provide an array of services to clients in need or those
who have already been victimized. CPAs who practice in the
PrimePlus/ElderCare arena may provide financial planning, estate
planning, and investment advice to help mitigate or avoid
financial elder abuse. Some even provide family office services to
their clients. These CPAs can be the eyes and ears for clients and
their families while relieving them of the burden of maintaining
complicated financial records.

What Can Be Done if Elder
Abuse Is Suspected?

Morally, everyone should feel a
responsibility to help protect the elderly from harm or abuse of
any kind. Yet many CPAs feel that they should not get involved in
cases of financial elder abuse because of liability issues or a
concern that they may have to disclose personal financial
information to adult children that may be protected by federal and
state statutes. However, many state statutes require certain
professionals, called mandated reporters, to inform authorities
when they observe suspected cases of abuse. In fact, eight states
have laws requiring that “any person” who suspects mistreatment of
an elderly person must report it. In California, Senate Bill 1018
was enacted as the Financial Elder Abuse Reporting Act of 2005 to,
among other things, add a number of professions to the list of
mandated reporters. CalCPA’s lobbying efforts were able to
eliminate CPAs from the list, but such inclusion could again
emerge as an issue in the future. CPAs should therefore stay
informed about such matters in their own jurisdictions. If they
have elderly clients or plan to begin providing
PrimePlus/ElderCare Services, they should consider how they will
conduct themselves if they become aware of or suspect financial
elder abuse while providing services to a client. They may even
want to consider incorporating the actions they would take into
the client engagement letter.

If CPAs decide to report
financial elder abuse, they have several options. They can contact
Adult Protective Services, the community’s elder care or long-term
care ombudsman, or the police department. An additional resource
to consider is the U.S. Department of Health and Human Service’s
Eldercare Locator help line at (800) 677-1116. The CPA will be
referred to a local agency that can direct him or her to resources
that can help. A relatively recent force to prevent financial
elder abuse has been the formation of fiduciary (or financial)
abuse specialist teams (FASTs). Originally started in Los Angeles,
these are interdisciplinary groups of concerned specialists from
law enforcement, adult protective services, the office of the
public guardian, prosecutors, health and mental health providers,
and financial and legal professionals. They volunteer to help
recover lost assets and to prevent further financial abuse. CPAs
interested in donating time to FASTs can become part of such
multidisciplinary teams.

Where Do CPAs Go from Here?

There has been a great deal of research on various kinds of elder
abuse, but there has been very little in the area of financial
abuse. Nevertheless, anecdotal evidence clearly shows that it is a
growing problem. CPAs should support efforts for additional research
to determine causes of financial elder abuse. They should also try
to find ways to prevent abuse before it starts or to end it once it
has begun within their client base. Providing elderly clients with
the services that will protect them can be both good business and
altruistic work. Properly trained CPAs can be both the first and
last lines of defense, protecting those who may be ripe for
exploitation.

The winner of The Tax Adviser’s 2014 Best Article Award is James M. Greenwell, CPA, MST, a senior tax specialist–partnerships with Phillips 66 in Bartlesville, Okla., for his article, “Partnership Capital Account Revaluations: An In-Depth Look at Sec. 704(c) Allocations.”

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